Riverstone Holdings - CGS-CIMB Research 2021-05-11: Starting The Year With A Bang


Riverstone Holdings - Starting The Year With A Bang

  • 1Q21 net profit of RM523m (+58% q-o-q, 11-fold increase y-o-y) was above expectations, as Riverstone continued to benefit from higher glove ASPs.
  • Riverstone’s prioritisation of cleanroom glove segment during COVID-19 crisis will lift its sustainable earnings profile, even as healthcare glove ASPs normalise.
  • Higher dividend payout remains a key catalyst – assuming 60% dividend payout ratio, Riverstone's FY21F dividend yield could reach 13.2%. Maintain ADD, with a DCF-based target price of S$1.80.

Riverstone's 1Q21 updates: A strong start to the year

  • Riverstone (SGX:AP4)’s 1Q21 net profit of RM522.7m (+58% q-o-q, 11-fold increase y-o-y) was above expectations, coming in at 39% of our FY21F. Boosted by continued ASP growth on both cleanroom and healthcare glove segments, Riverstone continued to record sequential topline growth (+43% q-o-q, +270% y-o-y) and margin expansion during the quarter.
  • Riverstone continued to operate at an optimal utilisation rate of 95% during the quarter.

Continued strength in cleanroom segment

  • Demand for cleanroom gloves remain robust, riding on growth in the tech manufacturing and pharmaceutical industries; Riverstone’s cleanroom glove sales volume grew 45% y-o-y in 1Q21, bringing its volume mix to 20% (1Q20: 15%). ASPs for this segment remain solid – we expect +8% q-o-q in 2Q21F.
  • Riverstone’s prioritisation of the cleanroom segment during the COVID-19 crisis is expected to bear fruit in the coming years – the segment typically contributes higher ASPs and GPMs, and the customer relationship is more sticky as Riverstone deals directly with end-customers. Management plans to further increase its volume mix from the cleanroom segment to 25% within the next 5 years; we believe this could lift the sustainable earnings profile of the company.

Healthcare glove ASPs likely peaked in 2Q21

  • Healthcare glove ASPs saw ~40% ASP hike in 1Q21, but we believe prices could normalise gradually beginning 2Q21F (-5% q-o-q), given
    1. increase in global glove supply with incoming capacity from new and existing glove makers,
    2. less panic buying by customers, and
    3. the recent decline in nitrile butadiene raw material prices.
  • While pricing will be negotiated monthly, Riverstone’s FY21F production capacity remains fully taken up. We are already pricing in monthly ASP declines of 3-5% since Apr 21 in our forecasts.

Maintain ADD with DCF-based target price of S$1.80

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-11
SGX Stock Analyst Report ADD MAINTAIN ADD 1.80 DOWN 2.300